November 18, 2015

DOE’s Dismal Record on Cellulosic Ethanol Production

November 18, 2015

In 2007, the U.S. Department of Energy (DOE) announced it would spend up to $385 million over four years on six biorefinery projects to make cellulosic ethanol cost-competitive with gasoline by 2012.[i] DOE described the program as follows:

“Specifically, these projects directly support the goals of President Bush’s Twenty in Ten Initiative, which aims to increase the use of renewable and alternative fuels in the transportation sector to the equivalent of 35 billion gallons of ethanol a year by 2017.“[ii]

This initiative was undertaken before the Energy Independence and Security Act of 2007 was passed, which altered the vision by removing “alternative fuels” and concentrating all mandates on renewable fuels with a goal of 36 billion gallons by 2022. Thus, the Bush Administration began the costly and ruinous government intervention into markets which is continued today under the Obama Administration.

Of the 36 billion gallons mandated in 2022, 16 billion gallons were to be cellulosic ethanol from non-food based biomass, such as agricultural waste, trees, forest residues, and perennial grasses. The federal government used tax credits, the renewable fuel mandate, loan guarantees and grants to encourage the use of cellulosic biofuels. Combined with industry’s share, over $1.2 billion was expected to be invested in these six biorefineries. However, even with that level of investment, several of these projects never came to fruition, and cellulosic ethanol is not cost competitive today.

The Six Biorefinery Projects

The DOE selected six projects in six different states to subsidize the development of the cellulosic ethanol industry. Those projects and their outcomes are discussed below.

Abengoa Bioenergy Biomass of Kansas: In 2007, the DOE proposed to spend up to $76 million on a plant in Kansas that was expected to produce 11.4 million gallons of ethanol each year as well as enough energy to power the facility, with any excess energy used to run the adjacent corn dry grind mill. The plant was expected to consume 700 tons per day of corn stover, wheat straw, milo stubble, switchgrass, and/or other feedstocks.[iii]

This Spanish company, Abengoa Bioenergy, actually received both a $132 million loan guarantee and a $97 million grant to construct the cellulosic biofuel refinery. DOE support helped pay for over half the $400 million cost of the plant, which has a production capacity of 25 million gallons a year and an expected generation level of 21 megawatts–enough electricity to power the facility and sell some back to the grid.[iv]

The plant opened in October 2014.[v] While the plant is not yet at full production, the company claims it is producing enough biofuels for commercial operation. But the company has not sold any cellulosic ethanol, preferring to hold the ethanol in storage rather than sell it. Despite receiving no revenues, the company repaid its loan in March of 2015 from the $8 billion in revenues it received from other product sales last year.

ALICO, Inc. of LaBelle, Florida: In 2007, the DOE proposed to spend up to $33 million on a biorefinery in LaBelle, Florida. The plant was expected to produce 13.9 million gallons of ethanol annually, 6,255 kilowatts of electric power, 8.8 tons of hydrogen, and 50 tons of ammonia per day. The plant was expected to consume 770 tons per day of yard, wood, and vegetative wastes and eventually energy cane.[vi]

However, in June 2008, ALICO withdrew from the project and left it in the hands of a consulting firm, New Planet Energy LLC (NPE). Besides the up to $33 million in grants it was supposed to receive from DOE, ALICO was to receive another $2.5 million from the state of Florida to partially offset the costs of the venture. With its removal from the project, ALICO no longer pursued the grant and had no further financial commitment or liability to NPE, DOE, or Florida with regard to the project.[vii]

BlueFire Ethanol, Inc. of Irvine, California: In 2007, the DOE proposed to spend up to $40 million on a biorefinery in Southern California. The plant was expected to be sited on an existing landfill and produce about 19 million gallons of ethanol annually. It was expected to consume 700 tons per day of sorted green waste and wood waste from landfills.[viii]

Despite DOE awarding the company a $40 million grant to build a cellulosic ethanol plant, in October 2009, BlueFire announced that it would relocate its proposed project to Fulton, Mississippi. Then, in mid-2011, the company announced it had completed site work for the project and was awaiting financing. Two years later, in March 2013, the project was still in the process of raising financing. Later that year, the company announced plans to reconfigure the proposed project to include nine million gallons of ethanol production annually and 400,000 tons of annual pellet production capacity. Now, the proposed Fulton plant is expected to produce the original 19 million gallons of ethanol capacity each year, but has no concrete plans for pellet production.

On October 23, 2014, BlueFire Renewables Inc. announced that it had received a letter of intent from the Export Import Bank of China to provide up to $270 million in debt financing for its proposed biorefinery project in Fulton, Mississippi. The announcement came shortly after BlueFire announced it has signed a master engineering, procurement and construction contract with China International Water and Electric, a subsidiary of China Three Gorges Corp., for the project. Once the financing is completed, the Fulton project is expected to take approximately 20 months to build and ethanol production could start as early as April 2017.[ix]

In February 2015, the Export Import Bank of China renewed the previously announced Letter of Intent to provide up to $270 million in debt financing for the biofuels project in Fulton, Mississippi[x]. The renewed letter of intent provides an extension of time to complete all required elements for the project.

Broin Companies of Sioux Falls, South Dakota: In 2007, the DOE proposed up to $80 million for the construction of a biorefinery in Emmetsburg, Iowa. After expansion, the plant is expected to produce 125 million gallons of ethanol annually, of which almost 25 percent is expected to be cellulosic ethanol. In the production of cellulosic ethanol, the plant is expected to consume 842 tons per day of corn fiber, cobs, and stalks.[xi]

Poet-DSM opened Project Liberty, a $275 million ethanol plant that uses corncobs, leaves and husks to produce ethanol, in Emmetsburg, Iowa in September 2014. Poet-DSM needed over a decade to develop the technology and over $120 million in state and federal grants. Poet, a South Dakota ethanol producer founded by Jeff Broin, partnered with Royal DSM of the Netherlands on the project.[xii]

At full capacity, the plant will convert 770 tons of crop residue per day into cellulosic ethanol. The company pays about $20 million annually to farmers within 45 miles of the plant for their corn stover. The plant produced several hundred gallons at opening in September 2014 and is expected to ultimately reach 25 million gallons annually. The cellulosic plant also generates a biogas that is used to power both it and the corn ethanol plant nearby. Poet-DSM believes it has the potential to achieve net sales of about $250 million from bioethanol production and licensing income by 2020, assuming continued support for biofuels from the government’s Renewable Fuel Standard.

Iogen Biorefinery Partners, LLC, of Arlington, Virginia: In 2007, the DOE proposed to spend up to $80 million on a biorefinery in Shelley, Idaho, near Idaho Falls. It was expected to produce 18 million gallons of ethanol annually. The plant was expected to consume 700 tons per day of agricultural residues including wheat straw, barley straw, corn stover, switchgrass, and rice straw as feedstocks.[xiii]

Iogen planned to build a cellulosic ethanol plant in Shelley, Idaho. Construction was expected to start in 2008 and be completed by 2010. Iogen, however, suspended its cellulosic plant plans for Idaho to instead focus on a more advanced plant in Saskatchewan, Canada without U.S. federal loan guarantees and grant money that was estimated at around $350 million for the Idaho plant.[xiv]

Range Fuels (formerly Kergy Inc.) of Broomfield, Colorado: In 2007, the DOE proposed up to $76 million for the construction of a biorefinery in Soperton, Georgia. The plant is expected to produce around 40 million gallons of ethanol per year and 9 million gallons of methanol annually. The plant is expected to consume 1,200 tons per day of wood residues and wood based energy crops.[xv]

In November 2007, Range Fuels broke ground on a cellulosic ethanol facility in southern Georgia promising to produce one hundred million gallons of ethanol made from wood waste annually by 2013, using a $76 million grant from DOE. In January 2009, Range Fuels received another $80 million from the federal government in loan guarantees from the U.S. Department of Agriculture. However, Range Fuels produced just one batch of ethanol and shut the plant down, claiming that it was to just demonstrate the technology. Furthermore, the plant produced mostly methanol, which did not meet the definition of cellulosic biofuel at the time of its production. However, EPA changed the definition of cellulosic biofuel to include methanol and included its projected production in its 2011 target for cellulosic ethanol.[xvi]

Conclusion

In 2007, Congress approved and President Bush signed the Energy Independence and Security Act that mandated specified amounts of corn and cellulosic ethanol to be produced and consumed each year through 2022. Cellulosic ethanol was not commercially viable then and despite a few plants starting production as noted above, it is still not commercially viable today. However, EPA still mandates a specified amount of cellulosic ethanol be produced and consumed by refineries each year that are above the amounts that industry has been able to achieve, despite their very low levels.

The federal government should not be in the business of picking winners and losers, as it needlessly spends U.S. taxpayers’ dollars on technologies that often fail – a bipartisan policy mistake of huge proportions. History has shown this time and time again. Rather, the market place should determine what technologies should be commercial and when they are available. Writing legislation to make it happen and spending taxpayers’ dollars to do so does not make it happen, as the above failures show.

Washington needs to learn that its interventions into free markets corrupt those markets, and leads to costly failures, whereas private initiatives succeed or fail based upon real markets and economics. The conceit of those in Washington to impose their will on others and “correct” actual markets is proven in this instance – as it so often is – to be an expensive failure.